{ "title": "Global Financial Stability Report, October 2022: Navigating the High-Inflation Environment", "publication": "Global Financial Stability Report, October 2022", "sourceUrl": "https://www.imf.org/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022", "canonical": "https://www.imf.org/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022", "overlayPath": "/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022/index.md", "summary": "Financial stability risks have increased amid the highest inflation in decades and the ongoing spillovers from Russia’s war in Ukraine to European and global energy markets.", "sections": [ { "heading": "Overview: Rising global financial stability risks", "content": "- Financial stability risks have increased amid the highest inflation in decades and the ongoing spillovers from Russia’s war in Ukraine to European and global energy markets.\n- Poor market liquidity raises the risk that a sudden, disorderly tightening in financial conditions may interact with preexisting vulnerabilities.\n- Specific regional and sectoral vulnerabilities noted:\n - Emerging markets: rising rates, weak fundamentals, and large outflows have pushed up borrowing costs, particularly for frontier economies, with a heightened risk of additional defaults.\n - China: the property downturn has deepened as sharp declines in home sales have exacerbated pressures on developers, with heightened risks of spillovers to the financial sector.\n - Europe: the energy crisis is contributing to a worsening outlook." }, { "heading": "Chapter 1 — Financial Stability in the New High-Inflation Environment", "content": "- Focus: policy response of central banks to high inflation, risks of a disorderly tightening of financial conditions, and debt distress among emerging and frontier markets.\n- Key findings:\n - Markets have been extremely volatile.\n - A deterioration in market liquidity appears to have amplified price moves.\n - In emerging markets, rising rates, weak fundamentals, and large outflows have pushed up borrowing costs, particularly for frontier economies, with a heightened risk of additional defaults.\n - In China, the property sector remains a key source of vulnerability.\n- Implication: heightened probability of interactions between market liquidity strains and preexisting vulnerabilities, potentially producing disorderly tightening in financial conditions." }, { "heading": "Chapter 2 — Scaling Up Private Climate Finance in Emerging Market and Developing Economies", "content": "- Focus: narrowing the climate financing gap in emerging market and developing economies.\n- Key findings and arguments:\n - Climate policies, including carbon pricing, climate disclosures, and transition taxonomies, are crucial for enabling private climate finance.\n - Innovative financial instruments can help to scale up private climate finance and broaden the investor base.\n - The public sector—including multilateral development banks—will have to play a key supporting role to provide risk-absorption capacity.\n - The IMF can play a catalytic role through policy advice, surveillance, capacity development, and financing from its new Resilience and Sustainability Trust, which could help tackle longer-term structural challenges arising from climate change." }, { "heading": "Chapter 3 — Asset Price Fragility: The Role of Open-End Investment Funds", "content": "- Focus: contributions of open-end investment funds to fragilities in asset markets.\n- Key findings:\n - Open-end investment funds play a key role in financial markets, but those offering daily redemptions while holding illiquid assets can amplify the effects of adverse shocks.\n - Mechanisms of amplification include higher likelihood of investor runs and asset fire sales, contributing to volatility in asset markets and potentially threatening financial stability.\n - These vulnerabilities could spill over to emerging markets and lead to a tightening of financial conditions.\n- Policy recommendation:\n - Policymakers should ensure that liquidity management tools are available, calibrated appropriately, and utilized by funds." }, { "heading": "Key takeaways and policy priorities", "content": "- Monitor and manage interactions between high inflation, central bank responses, and market liquidity to reduce the risk of a disorderly tightening of financial conditions.\n- Support emerging and frontier markets facing rising borrowing costs and debt-distress risks through targeted policies and international cooperation.\n- Address sectoral vulnerabilities, notably in China’s property sector, to limit spillovers to the financial system.\n- Scale up private climate finance via policy frameworks (carbon pricing, climate disclosures, transition taxonomies), innovative instruments, and public-sector interventions, with multilateral development banks and IMF mechanisms playing supporting roles.\n- Strengthen liquidity management frameworks for open-end investment funds to mitigate run and fire-sale risks and contain potential cross-border spillovers.\n\nGlobal Financial Stability Report, October 2022: Navigating the High-Inflation Environment\n\n---\n\n Content in this bundle\n\n- Chapter 1 Data\n - Chapter 1 Data (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 1 Data (XLSX){rel=\"external\" type=\"application/vnd.openxmlformats-officedocument.spreadsheetml.sheet\"}\n- Chapter 3 Data\n - Chapter 3 Data (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 3 Data (XLSX){rel=\"external\" type=\"application/vnd.openxmlformats-officedocument.spreadsheetml.sheet\"}\n- Chapter 1\n - Chapter 1 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 1 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Chapter 2 Online Annex\n - Chapter 2 Online Annex (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 2 Online Annex (PDF){rel=\"external\" type=\"application/pdf\"}\n- Chapter 3\n - Chapter 3 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 3 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Chapter 3 Online Annex\n - Chapter 3 Online Annex (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Chapter 3 Online Annex (PDF){rel=\"external\" type=\"application/pdf\"}\n- Executive Summary\n - Executive Summary (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Executive Summary (PDF){rel=\"external\" type=\"application/pdf\"}\n- Foreword\n - Foreword (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Foreword (PDF){rel=\"external\" type=\"application/pdf\"}\n- Global Financial Stability Report — Key Highlights\n - Global Financial Stability Report — Key Highlights (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Global Financial Stability Report — Key Highlights (PDF){rel=\"external\" type=\"application/pdf\"}\n- Full Report\n - Full Report (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Full Report (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Podcast\n- Blog by Tobias Adrian\n- Watch the Video\n- Read The Blog\n- watch the video\n- Read The Blog\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022" } ], "bullets": [ "[Markdown version](/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022/index.md)", "[Structured JSON version](/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022/index.json)", "[Bundle manifest](/en/publications/gfsr/issues/2022/10/11/global-financial-stability-report-october-2022/bundle-manifest.json)", "Published: October 11, 2022", "Financial stability risks have increased amid the highest inflation in decades and the ongoing spillovers from Russia’s war in Ukraine to European and global energy markets.", "Poor market liquidity raises the risk that a sudden, disorderly tightening in financial conditions may interact with preexisting vulnerabilities.", "Specific regional and sectoral vulnerabilities noted:", "Focus: policy response of central banks to high inflation, risks of a disorderly tightening of financial conditions, and debt distress among emerging and frontier markets.", "Key findings:", "Implication: heightened probability of interactions between market liquidity strains and preexisting vulnerabilities, potentially producing disorderly tightening in financial conditions.", "Focus: narrowing the climate financing gap in emerging market and developing economies.", "Key findings and arguments:", "Focus: contributions of open-end investment funds to fragilities in asset markets.", "Key findings:", "Policy recommendation:", "Monitor and manage interactions between high inflation, central bank responses, and market liquidity to reduce the risk of a disorderly tightening of financial conditions.", "Support emerging and frontier markets facing rising borrowing costs and debt-distress risks through targeted policies and international cooperation.", "Address sectoral vulnerabilities, notably in China’s property sector, to limit spillovers to the financial system.", "Scale up private climate finance via policy frameworks (carbon pricing, climate disclosures, transition taxonomies), innovative instruments, and public-sector interventions, with multilateral development banks and IMF mechanisms playing supporting roles.", "Strengthen liquidity management frameworks for open-end investment funds to mitigate run and fire-sale risks and contain potential cross-border spillovers.", "**Chapter 1 Data**", "**Chapter 3 Data**", "**Chapter 1**", "**Chapter 2 Online Annex**", "**Chapter 3**", "**Chapter 3 Online Annex**", "**Executive Summary**", "**Foreword**", "**Global Financial Stability Report — Key Highlights**", "**Full Report**", "[Podcast](https://www.imf.org/en/News/Podcasts/All-Podcasts/2022/10/11/GFSR-OCT-2022)", "[Blog by Tobias Adrian](https://www.imf.org/en/Blogs/Articles/2022/10/11/interest-rate-increases-volatile-markets-signal-rising-financial-stability-risks)", "[Watch the Video](https://www.imf.org/en/Videos/view?vid=6313422125112)", "[Read The Blog](https://origin-blogs.imf.org/en/blogs/articles/2022/10/07/how-to-scale-up-private-climate-finance-in-emerging-economies)", "[watch the video](https://www.imf.org/en/Videos/view?vid=6313256443112)", "[Read The Blog](https://www.imf.org/en/Blogs/Articles/2022/10/04/how-illiquid-open-end-funds-can-amplify-shocks-and-destabilize-asset-prices)" ], "related": [ { "title": "Chapter 1 Data", "role": "dataset", "sourceUrl": "https://www.imf.org/-/media/files/publications/gfsr/2022/october/data/ch1data.xlsx", "summary": { "path": "/-/media/files/publications/gfsr/2022/october/data/ch1data.xlsx.md", "mime": 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